I'm not trying to earn a profit or step outside of the bounds of being a Realtor and not a lawyer, but am I right to advise him along this path and direct him to an attorney and title company? 

I would then have to apply for commercial loan.Is this deal worth the extra effort?

Since you're a newer investor, I'd expect your rates to be around 12% and 3pts with 10% down payment.Your comps should dictate what you do to your house (in regards to that extra bathroom), not your own personal opinions or anyone else's.See if you can bring a contractor (to get bids) and inspector (to find out what's wrong with the house and determine your scope of work) to the house.What program are you with? 

If you could post about pros and cons, life style, ability to work extra, commission, hours...

By building up my rental portfolio, my passive income is now 3 times my earned income.

Charge extra for pets, not people, and especially not kids.Consider starting a policy of evaluating and raising rent annually. 

While I like the idea of rewarding someone in a career that gives back to the community, and realize this is a extra "perk" (not a detraction), at the same time, it's also a "perk" that some members of the community would literally never be able to have access to because of a disability.I am one of those people. 

In this case, the tenant thought paying "a little extra rent" would cover the costs.

If you pull out 700K could you invest and earn a minimum 56K net (8%).The problem with holding valuable real estate is that it's only value is all on paper and not generating any returns.

The extra income is (rightfully) added to the borrowers income,  and voila they can now afford the property.